Smith Barney’s ‘Golden Handcuffs’ Receive Court Approval

The New Jersey Supreme Court approved Smith Barney’s employee stock-purchase compensation plans that carry forfeiture provisions if participants quit before fully vesting.

The New Jersey Law Journal reports that the court in Rosen et al. v. Smith Barney agreed with an appellate court decision that programs like Smith Barney’s are expressly authorized by the wage and hour statute’s exceptions for programs that offer incentives for participation.

The state’s high court also decided the plan did not violate New Jersey public policy.

Smith Barney Inc. instituted its Capital Accumulation Plan (CAP) in 1989 to combat stockbroker turnover. Brokers could elect to have part of their compensation diverted to purchase restricted shares of stock in Smith Barney’s parent company, Citigroup Inc., at 25% below market price.

Stock ownership was not fully vested until completion of a two-year period, during which participants could not sell their shares but could receive dividends and exercise voting rights. Employees who quit or were let go prior to the vesting period forfeited their interests in the stock.

Two brokers who resigned within their vesting periods brought a class action suit on behalf of themselves and others subject to the forfeiture provision, and a trial judge ruled in their favor on summary judgment, finding the forfeiture of earned wages invested in the plan “contradicts public policy, which requires that employees receive their earned compensation.’

(See NJ Court Hears Challenge to Smith Barney Company Stock Forfeiture Policy.)